The announcement from the White House that a tentative deal has been reached to avert the first national rail strike in three decades comes as a huge relief for businesses and investors worried about fresh supply chain disruptions.
But it's not the only potential catalyst for another market sell-off, as uncertainty continues to dominate.
Active investors have had a tough year — over half of US large-cap equity fund managers underperformed the S&P 500 in the first half of 2022, according to S&P Dow Jones Indices. Unfortunately, there are plenty more bumps in the road for investors in the coming weeks.
See here: FedEx's stock is almost 20% lower in premarket trading on Friday after the company withdrew the financial guidance it issued just a few months ago and said it would move to slash costs as demand for packages fell across the globe. The company is seen as a bellwether for the economy since has insight into shipments across a wide range of industries.
Here's what we're watching out for.
1️⃣ The US Federal Reserve meets next week. Persistent inflation, fears of recession and slowing economic growth have rattled markets across the globe. Now as major central banks institute aggressive rounds of monetary policy tightening to battle inflation, investors fear that they may go too far.
On Wednesday, the US Federal Reserve will announce its decision on its next round of rate hikes. Fed Chair Jerome Powell, in the face of a very tight labor market and high inflation, has delivered a hawkish message to investors — indicating that the central bank will likely increase interest rates by another 75 basis points for the third time in a row.
If the Fed remains aggressive at the expense of economic growth we can expect months of cooling employment figures, especially wage data, and widening credit spreads that make it more expensive for companies to borrow.
That means higher bond yields, lower stock prices and less of a chance at a soft landing.
2️⃣ Earnings season is coming. Another risk for Wall Street is softer corporate earnings in October. About half of all S&P 500 companies mentioned "recession" during second quarter earnings calls, the highest number since 2010. Wall Street estimates for the next quarter are reflecting that gloom.
Third quarter earnings-per-share estimates have slipped more than 5.5% since the end of June, according to FactSet data. That's the largest drop for a quarter since the second quarter of 2020 (when Covid-19 sent the United States into recession).
Charles Schwab analysts are forecasting weaker earnings growth through 2022 compared to last year.
3️⃣ War in Ukraine. Markets have been heartened by Ukraine's advances, but the outcome of the war is far from certain. That should have investors on guard. Even if the conflict continues to swing in Ukraine's favor, Europe is unlikely to dodge a energy-crisis-induced recession this winter brought on by the invasion.
Global commodity flows, including critical supplies of fossil fuels, food, and fertilizer continue to be hampered regardless of which side is winning the fight. A new report by S&P Global Ratings estimates that war-related global energy and food shocks will last through at least 2024. Those shocks will continue to weigh on GDP and fiscal performance.
Comments
Post a Comment